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Bank FD – Special Schemes

 

The special deposit schemes that were a rage till recently are being phased out by banks. Meanwhile, thanks to the interest rate rises, the rates being offered by regular fixed deposits are slowly inching up to those being offered by the special schemes, signalling an end to the latter's earlier advantages.

Most banks had launched the special deposit schemes (maturing in 390 days, 555 days, 1,000 days) late last year, when rates were rising and banks started pushing these aggressively. For instance, Punjab National Bank is offering 9.05 per cent on a 555-day deposit and nine per cent for those maturing between one and three years. Bank of India is offering nine per cent for a 1,111-day deposit and the same rate between one and two years.

The difference is much wider between regular tenure deposits and the special schemes in the case of private banks. ICICI Bank is paying 9.25 per cent on 390-, 590- and 990day deposits and 7.50 per cent, 8.25 per cent and 8.50 per cent on one-, two- and three-year deposits, respectively.

As bankers explain, the rate of interest a bank offers on fixed deposits signals asset-liability mismatch (ALM). They will offer higher rate on tenures for which they need more funds, as these schemes help bridge ALM in a hardening interest rate regime for a long tenure. This means public sector banks have a neutral ALM, while private banks have a higher ALM and need more funds on certain maturities. So, State Bank of India, earlier offering 9.25 per cent only on its 555 and 1,000-day deposit schemes is now offering the same rate for longer tenures of one to 10 years.

Last year, bankers were advising to get in to special schemes for shorter tenures as rates were rising. And, you could reinvest once you completed the maturity or even withdraw mid-way. But, going by broad expectations, tomorrow's monetary policy review may see a final rate rise of 25 basis points and then the end of the tightening cycle. Bankers now suggest opting for schemes that give a higher rate, irrespective of whether they are special or regular ones. In fact, the longer the tenure, the better.

Interest rates have peaked. Therefore, opt for the higher rate even if you have to lock-in for a longer tenure, as these rates will not be offered in a long time. IndusInd Bank is giving 9.5 per cent on a 400day deposit and nine per cent between one and two years.

MD Mallya, chairman, Bank of Baroda, says there is still a difference in rates being offered on special and other schemes. Not all banks are giving the same rates across the board. His bank is offering 9.35 per cent on a 444-day scheme and only nine 9 per cent on regular tenure ones. So, inspite of rate rises, special deposit schemes are offering more value.

Most Banks Had Launched the special deposit schemes late last year, when rates were rising and banks started pushing these aggressively

 

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9) IDFC Mutual Funds:

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